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CIMA F3 Based on Real Exam Environment

Page: 26 / 33
Total 435 questions

Financial Strategy Questions and Answers

Question 101

Extracts from a company's profit forecast for the next financial year as follows:

  

Since preparing the forecast, the company has decided to return surplus cash to shareholders by a share repurchase arrangement.

The share repurchase would result in the company purchasing 20% of the 1,250 million ordinary shares currently in issue and canceling them.

 

Assuming the share repurchase went ahead, the impact on the company's forecast earnings per share will be an increase of:

Options:

A.

$0.100

B.

$0.125

C.

$0.175

D.

$0.200

Question 102

Which THREE of the following would be most important if a hospital wishes to review the effectiveness of its services?

Options:

A.

The proportion of surgical procedures that are deemed to be successful.

B.

Average waiting times for treatment.

C.

Patient satisfaction ratings.

D.

Staff costs compared to previous years. 

E.

Revenue generated from car park charges. 

Question 103

The two founding directors of an unlisted geared company want to establish its value as they are intending to approach a venture capitalist for additional funding.

The funding will be used to invest in a major new project which has very high growth potential. The directors intend to sell 10% of the company to the venture capitalist They have prepared the following current valuation of the company using the divided valuation model:

The following information is relevant.

• $60,000 is the most recent dividend paid.

• 4% is the average dividend growth over the last few years.

• 10% is an estimate of the company's cost of equity using the CAPM model with the industry average asset beta

Which THREE of the following are weaknesses of the valuation method used in these circumstances?

Options:

A.

The industry average asset beta is not an appropriate beta to use in CAPM in this case.

B.

The company is unlikely to achieve constant growth in dividends year-on-year.

C.

Future dividend growth is unlikely to reflect historical dividend growth.

D.

It is not an appropriate valuation method for a small, 10% equity stake

E.

CAPM cannot be used to estimate the cost of equity of an unlisted company.

Question 104

Company A plans to acquire Company B, an unlisted company which has been in business for 3 years.

It has incurred losses in its first 3 years but is expected to become highly profitable in the near future.

No listed companies in the country operate the same business field as Company B, a unique new high-risk business process.

The future success of the process and hence the future growth rate in earnings and dividends is difficult to determine.

Company A is assessing the validity of using the dividend growth method to value Company B.

 Which THREE of the following are weaknesses of using the dividend growth model to value an unlisted company such as Company HHG?

Options:

A.

The company has been unprofitable to date and hence, there is no established dividend payment pattern.

B.

The future projected dividend stream is used as the basis for the valuation.

C.

The future growth rate in earnings and dividends will be difficult to accurately determine. 

D.

The dividend growth model does not take the time value of money into consideration.

E.

The cost of capital will be difficult to estimate. 

Page: 26 / 33
Total 435 questions